4. Loans, net and allowance for loan losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs at December 31, 2019 and 2018 are summarized as follows. Net deferred loan costs included in loan balances were $908 and $744 in 2019 and 2018, respectively.


		December 31, 2019		December 31, 2018
Commercial	$	522,957	$	494,134
Real estate:
Commercial		1,011,423		907,803
Residential		301,378		299,876
Consumer		102,482		121,453
Total	$	1,938,240	$	1,823,266

Loans outstanding to directors, executive officers, principal stockholders or to their affiliates totaled $12,248 and $14,701 at December 31, 2019 and 2018, respectively. Advances and repayments during 2019 totaled $7,857 and $9,376 respectively. There were no related party loans that were classified as nonaccrual, past due, or restructured at December 31, 2019 and 2018.

Deposits from related parties amounted to $12.9 million at December 31, 2019 and $16.2 million at December 31, 2018.

At December 31, 2019, the majority of the Company’s loans were at least partially secured by real estate in the eastern Pennsylvania and southern tier New York counties. Therefore, a primary concentration of credit risk is directly related to the real estate market in these regions. Changes in the general economy, local economy or in the real estate market could affect the ultimate collectability of this portion of the loan portfolio. Management does not believe there are any other significant concentrations of credit risk that could affect the loan portfolio.

The changes in the allowance for loan losses account by major classification of loan for the year ended December 31, 2019, 2018, and 2017 were as follows:


			Real estate
December 31, 2019	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning balance	$	5,516	$	10,736	$	3,892	$	1,235	$	21,379
Charge-offs		(3,314)		(817)		(477)		(459)		(5,067)
Recoveries		69		1		29		166		265
Provisions		4,617		1,576		(218)		125		6,100
Ending balance	$	6,888	$	11,496	$	3,226	$	1,067	$	22,677
Ending balance: individually evaluated for impairment		363		279		135				777
Ending balance: collectively evaluated for impairment	$	6,525	$	11,217	$	3,091	$	1,067	$	21,900
Loans receivable:
Ending balance	$	522,957	$	1,011,423	$	301,378	$	102,482	$	1,938,240
Ending balance: individually evaluated for impairment		4,658		3,048		2,153		261		10,120
Ending balance: collectively evaluated for impairment	$	518,299	$	1,008,375	$	299,225	$	102,221	$	1,928,120

The allowance for loan losses increased $1.3 million to $22.7 million at December 31, 2019, from $21.4 million at the end of 2018. The increase resulted from a provision for loan losses of $6.1 million less net loans charged-off of $4.8 million. The charge-offs for fiscal 2019 primarily occurred in the fourth quarter. We charged-off $3.3 million of commercial loans in 2019 substantially all of which were in the fourth quarter. Included in this amount was $2.3 million related to certain small business lines of credit in our Greater Delaware Valley market.

In March 2020, we identified certain issues with a group of small business lines of credit, all of which had been originated by one of our lenders. All of these lines of credit were subject to credit review at origination and were considered satisfactory at such time. As a number of these lines of credit entered our annual renewal process, we identified changes in the credit quality of the borrowers which warranted action. We commenced a full review of this lender’s portfolio, as well as a review of other loans in our portfolio with similar characteristics. As a result of our review, we determined a number of the small business lines of credit originated by the particular lender to be impaired and collection doubtful at December 31, 2019. As such, we have charged-off $2.3 million of these loans and established a specific reserve of $0.3 million on one other line of credit retrospectively to December 31, 2019. All remaining small business commercial lines of credit for this lender were downgraded to special mention. We believe that all of the other loans in our portfolio with similar characteristics that were subject to our review were properly reflected in our allowance methodology at December 31, 2019.


			Real estate
December 31, 2018	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning balance	$	5,513	$	8,944	$	3,111	$	1,392	$	18,960
Charge-offs		(154)		(1,250)		(405)		(545)		(2,354)
Recoveries		137		136		98		202		573
Provisions		20		2,906		1,088		186		4,200
Ending balance	$	5,516	$	10,736	$	3,892	$	1,235	$	21,379
Ending balance: individually evaluated for impairment		50		403		666		60		1,179
Ending balance: collectively evaluated for impairment	$	5,466	$	10,333	$	3,226	$	1,175	$	20,200
Loans receivable:
Ending balance	$	494,134	$	907,803	$	299,876	$	121,453	$	1,823,266
Ending balance: individually evaluated for impairment		2,237		3,121		4,071		212		9,641
Ending balance: collectively evaluated for impairment	$	491,897	$	904,682	$	295,805	$	121,241	$	1,813,625


			Real estate
December 31, 2017	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning balance	$	4,452	$	7,548	$	2,961	$	1,000	$	15,961
Charge-offs		(173)		(706)		(533)		(737)		(2,149)
Recoveries		20		124		44		160		348
Provisions		1,214		1,978		639		969		4,800
Ending balance	$	5,513	$	8,944	$	3,111	$	1,392	$	18,960
Ending balance: individually evaluated for impairment		159		263		336		8		766
Ending balance: collectively evaluated for impairment	$	5,354	$	8,681	$	2,775	$	1,384	$	18,194
Loans receivable:
Ending balance	$	476,199	$	786,210	$	287,935	$	142,721	$	1,693,065
Ending balance: individually evaluated for impairment		2,463		4,289		3,793		177		10,722
Ending balance: collectively evaluated for impairment	$	473,736	$	781,921	$	284,142	$	142,544	$	1,682,343

The following tables present the major classification of loans summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system at December 31, 2019 and 2018:


			Special
December 31, 2019	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	513,994	$	3,837	$	5,126	$	$	522,957
Real estate:
Commercial		993,645		2,508		15,270			1,011,423
Residential		298,449		597		2,332			301,378
Consumer		102,145				337			102,482
Total	$	1,908,233	$	6,942	$	23,065	$	$	1,938,240


			Special
December 31, 2018	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	491,531	$	869	$	1,734	$	$	494,134
Real estate:
Commercial		886,849		8,934		12,020			907,803
Residential		295,758		357		3,761			299,876
Consumer		121,229				224			121,453
Total	$	1,795,367	$	10,160	$	17,739	$	$	1,823,266

The increase in commercial special mention loans was primarily due to the downgrade of approximately $2.5 million of small business loans originated by a specific lender that exhibit potential weaknesses that could impact collectability. The increase in substandard commercial loans is due to two relationships that have encountered some financial difficulties, however, both are considered adequately collateralized at December 31, 2019. The decrease in special mention commercial real estate loans and the resulting increase in substandard loans was primarily associated with the downgrade of a $5.1 million commercial real estate credit relationship that was subsequently paid in full during January 2020. The decline in outstanding substandard residential real estate loans was primarily due to the sale of $1.1 million in non-performing residential real estate loans during the first quarter of 2019.

Information concerning nonaccrual loans by major loan classification at December 31, 2019 and 2018 is summarized as follows:


		December 31, 2019		December 31, 2018
Commercial	$	3,336	$	776
Real estate:
Commercial		2,765		2,663
Residential		1,148		2,580
Consumer		261		212
Total	$	7,510	$	6,231

The major classification of loans by past due status at December 31, 2019 and 2018 are summarized as follows:


					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2019	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	75			$	3,036	$	3,111	$	519,846	$	522,957
Real estate:
Commercial		926	$	175		2,765		3,866		1,007,557		1,011,423
Residential		2,164		1,227		1,526		4,917		296,461		301,378	$	378
Consumer		523		123		261		907		101,575		102,482
Total	$	3,688	$	1,525	$	7,588	$	12,801	$	1,925,439	$	1,938,240	$	378


					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2018	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	973	$	79	$	776	$	1,828	$	492,306	$	494,134
Real estate:
Commercial		1,889		218		2,736		4,843		902,960		907,803	$	73
Residential		2,486		1,545		3,430		7,461		292,415		299,876		850
Consumer		756		292		212		1,260		120,193		121,453
Total	$	6,104	$	2,134	$	7,154	$	15,392	$	1,807,874	$	1,823,266	$	923

The increase in loans greater than ninety days delinquent at December 31, 2019 when compared to December 31, 2018 is due primarily to one commercial relationship involving four separate credits totaling $2.6 million which were placed on non-accrual during 2019. As of December 31, 2019, sufficient collateral supported the outstanding balances.

The following tables summarize information concerning impaired loans as of and for the years ended December 31, 2019, 2018 and 2017 by major loan classification:


							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2019	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	3,638	$	4,175			$	3,907	$	63
Real estate:
Commercial		1,918		2,205				2,385		38
Residential		1,718		2,060				1,362		25
Consumer		261		274				233
Total		7,535		8,714				7,887		126
With an allowance recorded:
Commercial		1,020		1,038		363		1,012		32
Real estate:
Commercial		1,130		1,811		279		1,050		10
Residential		435		450		135		1,408		29
Consumer								20
Total		2,585		3,299		777		3,490		71
Total impaired loans
Commercial		4,658		5,213		363		4,919		95
Real estate:
Commercial		3,048		4,016		279		3,435		48
Residential		2,153		2,510		135		2,770		54
Consumer		261		274				253
Total	$	10,120	$	12,013	$	777	$	11,377	$	197


							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2018	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	1,562	$	1,900			$	1,318	$	67
Real estate:
Commercial		1,969		2,299				2,822		28
Residential		1,970		2,658				2,193		22
Consumer		152		160				135
Total		5,653		7,017				6,468		117
With an allowance recorded:
Commercial		675		675		50		1,006		30
Real estate:
Commercial		1,152		1,323		403		1,676		18
Residential		2,101		2,328		666		1,585		22
Consumer		60		60		60		21
Total		3,988		4,386		1,179		4,288		70
Total impaired loans
Commercial		2,237		2,575		50		2,324		97
Real estate:
Commercial		3,121		3,622		403		4,498		46
Residential		4,071		4,986		666		3,778		44
Consumer		212		220		60		156
Total	$	9,641	$	11,403	$	1,179	$	10,756	$	187


							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2017	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	1,279	$	1,439			$	1,668	$	43
Real estate:
Commercial		2,888		3,190				2,985		24
Residential		2,196		2,672				2,227		21
Consumer		169		181				173
Total		6,532		7,482				7,053		88
With an allowance recorded:
Commercial		1,184		1,218	$	159		991		50
Real estate:
Commercial		1,401		1,496		263		2,202		18
Residential		1,597		1,759		336		1,335		23
Consumer		8		8		8		20
Total		4,190		4,481		766		4,548		91
Total impaired loans
Commercial		2,463		2,657		159		2,659		93
Real estate:
Commercial		4,289		4,686		263		5,187		42
Residential		3,793		4,431		336		3,562		44
Consumer		177		189		8		193
Total	$	10,722	$	11,963	$	766	$	11,601	$	179

There were no amounts of interest income recognized using the cash-basis method on impaired loans for the years ended December 31, 2019, 2018 and 2017.

Included in the commercial loan, commercial real estate and residential real estate categories are troubled debt restructurings that were classified as impaired. Trouble debt restructurings totaled $2,193 and $2,779 at December 31, 2019 and 2018 respectively.

There was one loan modified in 2019, one loan modified in 2018 and six loans modified in 2017 that resulted in troubled debt restructurings. The following tables summarize the loans whose terms have been modified resulting in troubled debt restructurings during the year ended December 31, 2019 and 2018 and 2017.


		Pre-Modification		Post-Modification
	Number	Outstanding Recorded		Outstanding		Recorded
December 31, 2019	of Contracts	Investment		Recorded Investment		Investment
Commercial real estate	1	$	346	$	346	$	241

		Pre-Modification		Post-Modification
	Number	Outstanding Recorded		Outstanding		Recorded
December 31, 2018	of Contracts	Investment		Recorded Investment		Investment
Commercial real estate	1	$	340	$	340	$	340

		Pre-Modification		Post-Modification
	Number	Outstanding Recorded		Outstanding		Recorded
December 31, 2017	of Contracts	Investment		Recorded Investment		Investment
Commercial	2	$	885	$	885	$	864
Commercial real estate	3		721		721		700
Residential mortgage	1		64		64		64
Total	6	$	1,670	$	1,670	$	1,628

There were no payment defaults within 12 months of its modification on loans considered troubled debt restructurings for the years ended December 31, 2019, December 31, 2018 and December 31, 2017.

The amount of residential loans in the formal process of foreclosure totaled $665 at December 31, 2019 and $1,823 at December 31, 2018.